Blain: "Maybe This Is Why Bitcoin Is Suddenly Soaring"

Blain's Morning Porridge, submitted by Bill Blain

Every morning its the same thing - struggle to understand the whys, the whats and the hows of market function and rationalise it into a single flow of consciousness. It could drive a fellow to drink… if it wasnt so much fun… So where are we this morning? Line up the players and the numbers, and lets take a look. OK? Stocks stable-ish, bond yields lower. Risk still off. Hmmm… what does it all mean? (Im struck by the parallels with ripping the gizzards out of chickens to work out whether its a good day to invade somewhere or not…)

The auguries today say….

The markets seem to have stopped worrying so much about the economic consequences of a trade war with China! Now they are convinced the lowest US10-year treasury rate in 18 months, and the 77% futures implied probability of a Fed rate cut later this year, means its great news for stock and confirms lower for longer. Yay! Let the party continue – lets invade wherever it was - although it does look like each rally is an opportunity for doubters to sell! Trump adds to the St Vitus mood by banning Huawei sales in US (what will the consequences be for Apple we wonder?) and China is apparently cutting its Treasury holdings.

Fascinating stuff in the press last few days… Aside from all the usual gibberish about when to buy and when to sell rallies, did you know Germany is recovering, the Italian govt is about the fall apart, and party dinosaurs in Australia will get beaten by unknown Greens in the weekend election. Europes center-right social democrats are about to become a page in the history books. Or that if Chinese growth declines to 4%, then demographics dictate it will never overtake the US as the Global economic superpower, and Chinese incomes will remain a fraction of US? Makes sense – and explains why so much of the market is assuming China will be ultimate loser of the trade war, and thats why Trump is playing it!
Oh dear. Forget the noise and focus on the facts. At the core of everything in these manic markets is a very simple concern: What is the value of money and what does it do to markets?

I remain absolutely convinced all the financial inconsistencies and political wobble we are experiencing today - from the wide angle perspective of wildly optimistic stock valuations, negative yields, and improbably tight corporate spreads, right down to fine close up detail such as the multiples being applied to single disruptive tech companies despite their burn and losses, and the rise of populism - all boil down to one factor: the distorted and miss-valued overly cheap price of money!

No Sh*t Sherlock award to myself for that downright obvious insight.

Whatve we seen clearly through right from the first days of post-2008 financial crisis monetary experimentation into QE – it didnt work. Cheap rates did not stimulate growth. It stimulated a free-money borrowing binge that was spent on ever more ludicrously priced financial assets – driving bond prices up, hence lower and lower yields, stock markets higher, and a increased appetite for risk in search of higher returns, hence the amount of cash available to fuel PE and VC binges in the tech sector. It kept the poor poor, but, made the rich much richer. QE was the basis ...

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Tags: Japan, market, People's Republic of China, Economy, Donald Trump, Morning, Forget the Noise, At the Core, Vitus, Huawei